The Fridtjof Nansen Institute Linking treaties to expand the market Kristian Tangen and Henrik Hasselknippe A post-2012 Architecture Bonn June

The Fridtjof Nansen Institute Merits and shortcomings of cap-and-trade Merits –Cost effectivness and price signals –Large reduction at low prices –TEETH! Shortcomings –High prices: Politically impossible –Need other instruments for technological change Create incentives for cap-and-trade Develop supplementing instruments

The Fridtjof Nansen Institute Challenges & Solutions Negotiations of several treaties –GOOD: Fewer negotiation parties –BAD: Fewer trade-offs, package deals Challenge –Weaker incentives for cap-and-trade? Solution? –Linked multi-treaty system –Differentiated rights and duties –Graduation thresholds

The Fridtjof Nansen Institute Linking rights and duties UNFCCC/KP/CDM Reporting Treaty Support Treaty Trading Treaty Other treaties -Technology -Development Rights: Only parties negotiate

The Fridtjof Nansen Institute Reporting Treaty Reporting: first step for effective policies Rights –Gateway to Support and Trading treaties Duties –Comply with reporting requirements Reporting requirements –Kyoto-style reporting (art. 5,7 & 8) –For sectors or whole economy –Depends on developing level –E.g. only CO 2 from energy

The Fridtjof Nansen Institute Support Treaty Below threshold Duties –Compliance with Reporting Treaty Rights –Participation –Capacity building –Financial support Above threshold Duties –Compliance with Trading Treaty Rights –Participation

The Fridtjof Nansen Institute Cap-and-trade Treaty Duties –Caps for sectors, or the whole economy –Caps only sectors covered by Reporting Treaty Rights –Full participation in emissions trading –Can be party to Support Treaty –Additional support for newcomers

The Fridtjof Nansen Institute Caps To be set by negotiations between parties to the Trading Treaty Possibility, one of many –Caps set as reduction from BAU –BAU has to be approved by review team –Lower reductions for newcomers Example –Newcomers: -0.1% from BAU –Veterans: -2% p.a. from BAU –With various levels in between?

The Fridtjof Nansen Institute Possible first steps Bottom-up processes Trading countries (EU, Japan, Canada) –Should develop common currency –Discuss linking and future evolution Reporting –Increase support for developing country reporting Technology and innovation –Establish framework for international cooperation Sensible also if KP does not enter into force